25 May 2020
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Additional explanations – Development Fund loans for maintaining liquidity and investing in working capital

As part of the legal framework to alleviate the economic fallout from the COVID-19 pandemic, the Government passed the Decree approving the scheme of financial support to businesses for maintaining liquidity and working capital in aggravated economic conditions (“Scheme“) on April 10, 2020.


Since then, the Ministry of Economy, the Development Fund of the Republic of Serbia and the Serbian Chamber of Commerce have published a number of responses to frequently asked questions regarding loans approved under the Scheme. An overview of most important explanations is presented below.


  1. Promissory notes of loan users and personal promissory notes of shareholders are stipulated as collaterals for loan amounts up to RSD 1,000,000.00. If a Serbian natural person is the shareholder of 10% (she/he is also the director and the legal representative), while the other shareholder is a Hungarian company with a share of 90%, is it enough that the Serbian national provide only two promissory notes as collateral or is it necessary to provide additional security?


Promissory notes from foreign shareholders are not required. Under the Scheme, for loans up to RSD 1,000,000.00, collateral is to be provided in the form of a personal promissory note from the shareholder and a promissory note from the loan beneficiary. Thus, in this case, the collateral to be presented should take the form of a promissory note from the company as loan beneficiary and a promissory note from the Serbian natural person who is the shareholder.


  1. If a company without an affiliated legal entity applies for a loan of up to RSD 10,000,000.00, what are the necessary collaterals other than promissory notes?


The Scheme stipulates that, for loans RSD 10,000,000.00, the collaterals required are а promissory notes from the loan beneficiary, personal promissory notes from the shareholders (all shareholders) and a guarantee from the affiliated legal entity. On the other hand, in the responses provided to date it was clarified that for loans up to RSD 10,000,000.00, collaterals may also take the form of bank guarantees, guarantees by another business entity that is not affiliated with the loan beneficiary, asset pledges and mortgages.


In addition, we draw your attention to another important explanation. If the loan beneficiary cannot provide some of the stated collateral, these may be substituted with a bank guarantee. Pledges on equipment and mortgages may be used as collaterals for all loan amounts. The guarantee of a creditworthy business (which is not an affiliated legal entity with the loan applicant) may be used as collateral for all loans up to the RSD 25,000,000.00.


Promissory notes from a loan beneficiary and shareholders may be used as loan collaterals only for loans up to RSD 1,000,000.00.


  1. Is a mutual guarantee from two business entities possible if they are simultaneously applying for the same funds?


Yes, if they have satisfactory credit rating and meet the criteria (regarding operating income and other conditions) as stated in the lending terms and conditions on the Development Fund’s website.


  1. May an accounting agency send a loan application on a client’s behalf and track its progress if the client is not in a position to do so, or must every application be sent directly from the company’s email address?


An accounting agency may send the loan application, but it is important that the email specified in the request is operational in terms of communication with the client on whose behalf the application is being submitted.


  1. May a client apply for funds both with the bank and the Development Fund, or does it have to choose one of these options when it comes to guaranteeing loans?


The client may apply for both funds in line with both schemes.


  1. What are the penalties for businesses if they reduce the number of employees during the term of the loan or if they pay dividends by the end of the year?


If during the term of the loan a loan beneficiary is found to be in breach of any provision of the Scheme or the loan agreement, the loan shall be declared due in whole and proceedings for enforced collection of receivables will be initiated by activating the collaterals.


  1. Is a guarantee from a private individual required for a loan exceeding RSD 2,000,000.00, or is such guarantee required only for loans between RSD 1,000,000.00 – 2,000,000.00?


For loans up to RSD 1,000,000.00, a guarantee is not required at all. For loans up to RSD 2,000,000.00, a guarantee from a private individual employed for an indefinite period at the loan beneficiary company is necessary, whereas for loans exceeding RSD 2,000,000.00, a guarantee from a legal entity guarantee is required – for loans up to RSD 10,000,000.00, this guarantee may be provided by an affiliated legal entity, while for loans up to RSD 25,000,000.00, this guarantee must be provided by a creditworthy business that is not affiliated with the loan beneficiary.



  1. A company that had not been operational in years started an IT business on March 1, 2020 and generated its first income. May the condition that the loan ceiling of 50% of the previous year’s revenue is applied in such a way as to take account of 50% of the current year’s revenue instead?


The loan ceiling is 50% of the operating income earned as per the previously submitted financial statements. Current-year revenues cannot be taken into consideration because loan amounts are determined exclusively on the basis of the submitted financial statements.


  1. Must a valuation of the real estate to be used as collateral by the company accompany the application, or maybe submitted after the loan is approved and before mortgage is registered inscribed and the loan disbursed?


A scanned estimate of the market value must be submitted together with the loan application.


  1. How many promissory notes need to be submitted with a Development Fund loan application and supporting documentation?


The maximum number of promissory notes is 12. Promissory notes are not be submitted with the application, but later, after the loan has been approved and the loan agreement signed.


  1. Should the term “affiliated legal entity” be understood within the meaning of the Accounting Act or the Corporation Tax Act? If an individual holds more than 25% of the shares in each of two or three companies, are these companies considered affiliated (Corporation Tax Act)? If they are considered affiliated parties and we have two small legal entities and one medium-sized legal entity, is their limit for medium-sized legal entities RSD 120,000,000.00?


Affiliated party status is interpreted in line with the Companies Act (provisions regarding groups of companies) and the Banks Act cumulatively. The limit for the described group is RSD 120,000,000.00.


  1. Are bank certificates in respect of turnover required from all banks with whom the company has accounts or just from those banks with whom the company has cooperated the most?


If a company has a low turnover or no turnover with some of the banks, it is not necessary to submit all certificates. However, it is in the loan applicant’s own interest to furnish evidence that best reflects its true turnover.


  1. May a pledge on commodities serve as collateral if the company engages in sales as a business activity, or may it only be a pledge on equipment or mortgage that is used as collateral?


A pledge on commodities cannot serve as collateral.


  1. If a private individual is a shareholder and director of two companies, with 100% shareholding in each, can both companies apply for loans to resolve liquidity issues?


Applications may be submitted by both companies, but the total limit cannot be exceeded. Of course, adequate collateral is also needed.


  1. If an applicant has two affiliated legal entities, is it necessary to provide guarantees for both legal entities for a loan of RSD 5,000,000.00?


A guarantee from one affiliated legal entity is sufficient if it meets the terms and conditions.


  1. If a legal entity wishes to provide as collateral a pledge on a property that is not owned by it, but which it is only leasing (in particular, vehicles owned by another company), what documentation is the applicant required to submit with the loan request?


If the equipment or real estate is not owned by the loan applicant, the documents from the owner of the equipment or real estate, which are listed on the Development Fund’s website in the Documentation Contents, must be submitted.


  1. May liquidity loans be used to purchase equipment or fixed assets?


No, they may not. Other loan types are available through the Development Fund for funding investments. Loans provided for in the Scheme are intended specifically for investing in working capital and maintaining liquidity, and the Development Fund will check whether loans were used in line with the intended purpose.


  1. May liquidity loans be used to settle existing suppliers’ obligations arising from an earlier acquisition of fixed assets and is the purpose of these loans solely to pay liabilities arising from the acquisition of working capital, earnings and other current liquidity liabilities?


Liquidity loans may be used to settle obligations towards suppliers, both pre-existing and future obligations; the loans may also be used to obtain working capital, pay wages and other current liquidity obligations.


  1. Which bank account should the fee for the Credit Bureau services be paid into for COVID-19 working capital loan approvals?


Fees for Credit Bureau services should be paid into the Development Fund’s account number 840-2724-07, reference number 7123, for the Credit Bureau’s report.


  1. Can the payment to the Credit Bureau be made from the company’s account and can a statement evidencing the payment be sent as proof of payment?


It can be paid from the company’s account. The documentation (see link in answer to question 16) also contains approval for the Credit Bureau which should also be submitted.


  1. Can a loan application be completed by hand, or must it be completed on a computer and printed?


Loan applications can be completed by hand, but for easier processing and greater legibility of the documentation, it is best to complete the application on your computer, scan, and e-mail it to: prijemzahteva_covid19@fondzarazvoj.rs. All documentation must be submitted by e-mail only.


  1. The following question was asked on behalf of a joint-stock company with 76 shareholders. One of the terms of the Scheme is that it is necessary to submit personal promissory notes from the shareholders (all). Is it necessary to provide personal promissory notes for all shareholders?


In this case, it is possible to submit personal promissory notes from the majority shareholders, holding 51% of shares


  1. Will loan approval decisions be made by late 2020 or early 2021, which would mean that loans may be used next year?


Decisions will be made immediately on receipt of complete documentation, and the funds will be available for use immediately upon approval, after the signing of the loan agreement and the submission of collateral.


  1. Is a domestic legal entity, classified as a medium-sized as per its latest financial statements and which is part of a multinational group which at the consolidated level belongs to a large-sized legal entity, eligible to apply for funds?


Medium-sized legal entities are eligible to apply if they are part of a multinational corporation.


  1. What happens to employees engaged on fixed-term before March 16, 2020 whose employment agreements expire in the next three months? Are such employees also included in the 10% of employees who may not be laid off?


These employees are not included in that number.